TMI Blog2016 (3) TMI 327X X X X Extracts X X X X X X X X Extracts X X X X ..... ment division, there remains no difficulty in realizing that the CIT proceeded on a wrong premise which was responsible for exercise of jurisdiction under Section 263 which he would not have done if he had realized the correct position Had it not been a case of section 115JB the capital loss incurred on transfer of investments would have been dealt as follows: 1. Under section 70(2) short term capital loss would be set off against either short term or long term capital gain. 2. Under section 70(3) long term capital loss would be set off against long term capital gain only. 3. Under section 71(3) if the net result of computation under the head “Capital gain” is a loss then such loss cannot be set off against income under any other head. 4. Under section 74(1)(a) short term capital loss would be carried forward to the following assessment year and be set off against either short term or long term capital gain. 5. Under section 74(1)(b) long term capital loss would be carried forward to the following assessment year and be set off against long term capital gain only. In that view of the matter, the only conclusion which can be arrived at is that the order passed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Learned Income Tax Appellate Tribunal B Bench, Kolkata is perverse, bad in law ? Briefly stated the facts and circumstances of the case are as follows:- The assessee M/s. Binani Cement Ltd. is an Indian Company engaged in manufacture and sale of clinker and cement. The assessee filed its return of income for the assessment year 2006-07 disclosing total income at nil and book profit under Section 115JB of the Act at ₹ 48,62,96,592/-. The same was processed under Section 143(1) of the Act. Subsequently, the scrutiny assessment proceeding was initiated and notice was issued under Section 143(2). The scrutiny assessment was completed under Section 143(3) by an order dated 5th November, 2008 whereby the total income was determined to be nil and book profit u/s.115JB was found to be ₹ 47,21,87,057/-. Furthermore, a claim for deduction of ₹ 70,48,242/- u/s.35E of the Act was disallowed. The Commissioner of Income Tax (hereinafter referred to as the CIT ) by an order dated 20th January 2011 u/s.263 of the Act observed that the assessee had debited an amount of ₹ 919.52 lakhs to the Profit and Loss Account in accordance with a scheme of arrangement for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 006. The CIT by the aforesaid order dated 20th January 2011 u/s.263 of the Act, further observed that the aforesaid amount of ₹ 919.52 lakhs was not added back in computing the book profit u/s.115JB of the Act, and as such the assessment order dated 5th November, 2008, u/s.143(3) of the Act was erroneous and prejudicial to the interest of the revenue. Therefore the CIT set aside the order of assessment and directed the assessing officer to decide the issue in accordance with law. The CIT in his order made the following observations:- I have gone through the assessment records and the written submissions of the assessee in response to the show-cause notice u/s.263. The facts of debiting ₹ 929.52 lakh to the P/L A/c on share capital reduction for disinvestment in shares held as investment as per scheme of arrangement and of not adding back the same for the purpose of computation of book profit for MAT u/s 115JB of the Act, have not been disputed by the assessee. The relevant facts are available from Notes on A/cs. no.8 of Schedule-15 of the audited accounts of the assessee company. As per the Notes, in accordance with a scheme of arrangement the assessee com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such loss fictitious as held by ITAT, Delhi in quantum appeal in a similar case of debit in the case of Hari Machines Ltd. This is evident from the report of the case of CIT Vs. Hari Machines Ltd. in 166 Taxman 84 (2008), which was in respect of penalty u/s 271 (1)(c) but in the facts such finding of ITAT has been discussed. Therefore, such share capital reduction cannot be an item of P/L Ac. As per Partll III of Schedule-VI of the Companies Act. The decision of the Hon ble Apex Court in the case of Apollo Tyres Ltd. in respect of adjustments only as per explanation-1 is applicable only after the accounts have been prepared as provided in sub-section (2) of Sec. 115JB of the Act. The condition not having been satisfied, the amount was required to be added back in computation of Book profit for MAT u/s 115JB. But it is apparent from the records that the issue has not been examined by the AO at all while passing the assessment order and no such addition has been made Therefore, it is held that the assessment order u/s.143(3) dated 05.11.2008 passed by the A.O. is erroneous and prejudicial to the interest of the revenue so far as the above mentioned issue is concerned and accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directed by the CIT is devoid of legally sustainable merits. For the reasons set out above, we vacate the impugned revision order. As the assessee has succeeded on merits, we see no need to deal with other peripheral legal issues raised by the assessee. Mr. J. D. Mistri learned Senior Advocate appearing for the assessee made the following submissions:- 1) According to the mandate of s.115JB(2)(a) the assessee company had maintained its accounts as per the provisions of Part II and Part III of Schedule VI of the Companies Act 1956. The same was scrutinized and certified by the statutory auditors and was approved by the assessee company in its annual general meeting. As such the assessing officer had no jurisdiction to question the correctness of the accounts. In support of his submission he relied on the judgement of the Apex Court in the case of Apollo Tyres Ltd. Vs- CIT reported in (2002) 255 ITR 273 wherein the following issue arose for consideration:- Can an Assessing Officer while assessing a company for income tax under Section 115-J of the Income Tax Act question the correctness of the profit and loss account prepared by the assessee company and certifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference to the provisions of the Companies Act which obligates the company to maintain its account in a manner provided by the Companies Act and the same to be scrutinised and certified by statutory auditors and will have to be approved by the company in its General Meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act. In spite of all these procedures contemplated under the provisions of the Companies Act, we find it difficult to accept the argument of the Revenue that it is still open to the Assessing Officer to rescrutinize this account and satisfy himself that these accounts have been maintained in accordance with the provisions of the Companies Act. In our opinion, reliance placed by the Revenue on sub-section (1-A) of Section 115-J of the IT Act in support of the above contention is misplaced. Sub-section (1-A) of Section 115-J does not empower the Assessing Officer to embark upon a fresh inquiry in regard to the entries made in the books of account of the company. The said sub-section, as a matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the learned Tribunal correctly held that the AO has to accept the authenticity of the account maintained in accordance with the provisions of the Companies Act in particular Part II and Part III of Sch VI to the said Act which are specifically certified by the auditors and approved by the company in the annual general meeting. The Bombay High Court also followed the views expressed by the Apex Court in Apollo Tyres in the case of CIT Vs- Adbhut Trading Company Pvt. Ltd. reported in (2011) 338 ITR 94 and held as follows: According to the Revenue, the assessee has intentionally prepared a wrong profit and loss account. Once the accounts' including the profit and loss account are certified by the authorities under the Companies Act it is not open to the Assessing Officer to contend that the profit and loss account has not been prepared in accordance with the provisions of the Companies Act, 1956. 3) The Registrar of Companies, Statutory auditors and share-holders are the only authorities to check whether accounts are in accordance with Part II and III of Schedule VI of the Companies Act 1956. 4) By an order dated 17th August, 2005 this Court sanction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ac. As per Part-II III of Schedule-VI of the Companies Act. 6) The CIT by his order u/s.263 wrongly relied on the judgment of CIT Vs- Hari Machines Ltd reported in (2009) 311 ITR 285 which has no manner of application to the facts of the instant case. In Hari Machines (supra) the issue was regarding imposition of penalty under Section 271(1)(c) of the Act and it was not a case dealing with Section 115JB. In that case, the assessee had a paid up capital of ₹ 25 lakhs however according to the assessee the intrinsic value of the equity shares was ₹ 19.5 lakhs odd. Thus the assessee decided to reduce the share capital to ₹ 20 lakhs and applied to the Calcutta High Court for permission, which was granted. The assessing officer was of the view that reduction in share capital did not represent a loss incurred by the assessee and taxed the amount of ₹ 5 lakhs allegedly shown as a loss. The CIT(Appeals) as well as the Tribunal upheld the action of the assessing officer. The Tribunal came to a conclusion that the loss shown on account of reduction of share capital was a fictitious loss with the intention of creating a scheme or device to defraud the Revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otwithstanding the strong words used by the Tribunal in the quantum matter. The assessee was entitled to determine the intrinsic value of its shares, which it did. Thereafter, in order to reduce its share capital, the assessee is obliged to proceed in accordance with law and so the assessee approached the Calcutta High Court for reduction of its share capital. After considering the materials on record, the Calcutta High Court permitted the assessee to reduce its share capital in terms of its order dated December 21, 1972. It is nobody's case that the Calcutta High Court was defrauded by the assessee. That being the position we must proceed on the basis that the decision rendered by the Calcutta High Court was correct and there was no attempt on the part of the assessee to mislead the Calcutta High Court. On the other hand, the Calcutta High Court could have refused to entertain the prayer made by the assessee, if the assessee had tried to mislead the court. Under these circumstances, we are of the opinion that the Tribunal was correct in upholding the order passed by the Commissioner of Income-tax (Appeals) cancelling the levy of penalty against the assessee and hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase prejudicial to the interests of the Revenue is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy Co. v. S.P. Jain [(1957) 31 ITR 872 (Cal)] , the High Court of Karnataka in CIT v. T. Narayana Pai [(1975) 98 ITR 422 (Kant)] , the High Court of Bombay in CIT v. Gabriel India Ltd. [(1993) 203 ITR 108 (Bom)] and the High Court of Gujarat in CIT v. Minalben S. Parikh [(1995) 215 ITR 81 (Guj)] treated loss of tax as prejudicial to the interests of the Revenue The phrase prejudicial to the interests of the Revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available on the record called for by the Commissioner to satisfy him prima facie that the aforesaid two conditions are present. If not, he has no authority to initiate proceedings for revision u/s.263 of the Act. The said provision does not allow the Commissioner to substitute his own view for that of the assessing officer unless the conditions precedent u/s.263 are satisfied. In support of his submission he relied on a judgement of the Bombay High Court in CIT Vs- Gabriel India Ltd. reported in (1993) 203 ITR 108 wherein the court has elaborately discussed the scope of s.263 in the following words:- From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue if it is not in accordance with the law in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised. There must be material available on the record called for by the Commissioner to satisfy him prima facie that the aforesaid two requisites are present. If not, he has no authority to initiate proceedings for revision. Exercise of power of suo motu revision under such circumstances will amount to arbitrary exercise of power. It is well-settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the court it would be open to the courts to examine whether the relevant objective factors were available from the records called for and examined by such authority So far as calling for the records and examining the same is concerned, undoubtedly, it is an administrative act, but on examination to consider or in other words, to form an opinion that the particular order is erroneous in so far as it is prejudicial to the interests of the Revenue, is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parately dividends from subsidiary companies), and rentals on investments showing separately such income from long term and current investments. Gross income should be stated, the amount of income tax deducted at source being included under Advance Taxes Paid; (ii) profits and losses on disposal of current investments and changes in carrying amount of such investments; (iii) profits and losses on disposal of long term investments and changes in the carrying amount of such investments; (c) significant restrictions on the right of ownership, realisability of investments or the remittance of income and proceeds of disposal; (d) the aggregate amount of quoted and unquoted investments, giving the aggregate market value of quoted investments; (e) other disclosures as specifically required by the relevant statute governing the enterprise. The disclosure made in the financial statements is in pursuance of the requirement of Clause- 25 quoted above and is also in pursuance of Clause 2(b) of Part II of Schedule VI to the Companies Act, 1956 which is not to be construed as any qualification indicating any inaccuracy in the accounts. There was, thus no mista ..... X X X X Extracts X X X X X X X X Extracts X X X X
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